A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust that one spouse creates and funds during their lifetime, with the other spouse named as a primary beneficiary. The trust assets grow tax-free and can be distributed to the spouse and eventually to children or other heirs, all outside the grantor's taxable estate. SLATs are primarily used as an advanced estate planning strategy to reduce federal estate taxes while maintaining some level of access to the transferred wealth.
How It Works
When you establish a SLAT, you transfer assets (typically cash, investments, or business interests) into an irrevocable trust. Your spouse receives distributions during their lifetime at the trustee's discretion. Since the trust is irrevocable, these assets no longer count toward your estate for federal estate tax purposes—they're removed from your taxable estate immediately and permanently. The trust can be structured so that after your spouse's lifetime, remaining assets pass to your children or other beneficiaries, completely sheltered from estate taxes. The key tax benefit comes from leveraging both spouses' federal gift tax exemptions (currently $13.61 million each in 2024).
Why It Matters for Investors
For high-net-worth individuals and entrepreneurs, SLATs represent a sophisticated way to preserve wealth across generations. Instead of assets being subject to federal estate taxes of up to 40%, a properly structured SLAT allows exponential growth to pass tax-free to heirs. This is especially valuable for investors with concentrated stock positions, real estate portfolios, or successful businesses expecting significant appreciation. Couples can effectively double their tax-free transfer capacity by each establishing a SLAT for the other spouse. The strategy also provides creditor protection and asset management benefits beyond tax savings.
Example
Suppose a couple has a combined net worth of $30 million, including a portfolio of growth stocks. Husband funds a SLAT with $13.61 million in appreciated stock for his wife's benefit. Wife does the same in a separate trust for her husband's benefit. Over 20 years, each trust grows to $35 million. When the first spouse passes, their $35 million SLAT passes tax-free to their children, avoiding roughly $14 million in estate taxes. The couple successfully transferred $70 million to the next generation with minimal tax impact.
Key Takeaways
- SLATs remove assets from your taxable estate while providing spousal access and ultimate wealth transfer to heirs
- Couples can maximize tax benefits by using both spouses' lifetime gift exemptions through reciprocal trusts
- The strategy works best with assets expected to appreciate significantly over time
- SLATs are irrevocable, so careful planning and trustee selection are essential—consult an estate attorney before establishing